Corn ethanol approaches a moment of truth

[UPDATED 4/24] As expected, California’s Air Resources Board passed the LCFS with the indirect land use component intact. That’s the good news. The bad news is that the actual model to be used in the calculation (including to what extent gasoline will incur an indirect land use penalty) won’t be finalized until 2011, a year before the rule actually goes into effect. The badder news is that Reuters reported that CARB’s chair, Mary Nichols, sent a to letter for Fmr. Gen. Wesley Clark, CEO of Growth Energy, the main ethanol lobbying group, declaring “that corn ethanol will play an important role in helping California achieve the goals of the [LCFS].” Make of that what you will.

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Corn ethanol (not to mention soy biodiesel) may have reached a turning point. But it is regulators, not legislators, who are in the driver’s seat. A series of regulatory rulings, one expected as early as today, may help to determine whether corn ethanol or soy biodiesel will play any meaningful role in our future biofuel mix.

Today, the California Air Resources Board plans to rule on its proposed definition of a Low Carbon Fuel Standard. As the LA Times explains:

The goal of the Low Carbon Fuel Standard is to lower the “carbon intensity” of fuels sold in California 10% by 2020. It does this by using complexformulas to score each type of fuel based on its life-cycle emissions; carbon intensity is calculated by comparing the amount of greenhouse gases emitted by a fuel over its life cycle with the amount of energy it produces. Starting in 2011, companies that sell fuel in California will have to lower the overall carbon intensity of their various fuels at a rate that will increase every year until 2020, or else buy credits from companies that sell cleaner fuels.

At issue for ethanol (and other biofuels) is the inclusion in the LCFS of indirect land use effects in calculating a fuel’s total GHG contributions. If the proposed rule is approved, California will utilize a computer model that incorporates the effects on GHG emissions of growing fuel on existing farmland, as well as the effect of deforestation caused by the need to bring additional land under cultivation as fuel crops displace food crops worldwide. Growing food-for-fuel will display a signficant indirect land use effect (while cellulosic ethanol, produced from non-food crops like switchgrass and jatropha, will get a pass).

Corn ethanol is thus unlikely to survive the analysis and qualify for California’s LCFS. Corn ethanol would be, for lack of a better word, banned from the Golden State. Amplifying the significance of the ruling is the expectation that a large group of Northeastern states will adopt California’s standard. As you might imagine, the ethanol industry (which is still 100% corn-based) is not amused. Apoplectic might be a better description. But when you put aside the fury, their objections boil down to the fact that indirect land use effects are a new field that’s hard to model. So there. Most analysts don’t expect the CARB to be swayed by such devastating flights of logical prowess. We’ll find out soon enough.

This ruling couldn’t come at a worse time for the ethanol industry, already reeling from the economic downturn. Following on the heels of California’s upcoming ruling, the EPA will be updating the 2007 Energy Bill’s Renewable Fuel Standard sometime this year. And according to this report in AgricultureOnline (via FarmPolicy.com), the EPA will also begin incorporating indirect land use effects in its assesment of ethanol and other biofules. To qualify for the RFS, a fuel must demonstrate a 50% improvement over fossil fuels in terms of its GHG contributions. Once indirect land use effects are included, food-based fuels will no longer make the cut. Of course, the EPA may not have the final word. In an interesting development, AgOnline also reports that House Speaker Nancy Pelosi’s staff indicated that “it was not the intent of Congress to have soy biodiesel excluded from the RFS.” In other words, there’s always the possibility of Congressional action to undo any EPA ruling.

In the midst of all this bad news for corn ethanol, the industry is pinning its hopes on its petition to the EPA to increase the so-called “blend wall” — the maximum amount of ethanol that can be added to gasoline. I’ve explained at length the saga of the blend wall — the ethanol industry, USDA chief Tom Vilsack, even Nancy Pelosi have called for an increase. And the now the EPA has agreed to consider it. Despite the apparent “victory” of starting a rulemaking process, I’m skeptical that, in light of all these other developments — not least of which is the EPA’s recent “endangerment” finding regarding carbon dioxide — the agency is inclined to do the corn ethanol folks any favors. Even so, everyone should be encouraged to submit a comment urging the EPA to maintain the current blend wall given the enormous pressures on land use and food prices the current practice of using food for fuel represents. You can email comments to a-and-r-docket@epa.gov and be sure to put Docket ID No. EPA-HQ-OAR-2009-0211 in the subject line. The deadline for comments is May 21 with a ruling not expected until late this year.

As an interesting coda, I was gratified to note that President Obama, in his Earth Day speech in corn-drenched Iowa, didn’t mention anything about “growing our fuel” (something that has been a staple in his “green” speeches of late). I hope it was a conscious decision. Corn ethanol has powerful backers among industry, Congress and the Executive Branch who may yet find ways to continue this food-for-fuel boondoggle. But it does seem like the science behind corn ethanol’s real-world effects may soon have the upper hand.